Buyers have numerous financing options for purchasing a home. Most lenders will offer some or all of the following:
A Conventional loan is a mortgage made between a lender and a borrower. Conventional loans customarily require a 20% down payment, although down payments may be as low as 5%. Mortgage insurance is required if the down payment is less than 20%.
The VA loan helps eligible veterans by guaranteeing mortgages for lenders. The letters ‘VA’ stand for Veteran’s Administration — a branch of the US government. VA loans may require no down payment up to the VA maximum loan limit. VA loans can be assumed by qualified borrowers.
FHA is the Federal Housing Administration, a division of the US Department of Housing and Urban Development. The Federal Housing Administration does not lend money; instead, like VA, it insures mortgages. Down payments are as low as 3.5%. Both fixed-rate and ARM mortgages are available. FHA loans are assumable by qualified borrowers.
USDA loan helps those who reside in what the USDA refers to as a “rural area.” Homeowners can reap the benefits of zero money down, 100% financing and access to highly competitive mortgage rates. With the USDA Loan, there are certain home loan qualifications such as location, construction standards, income standards and cost limits that must be met for the homeowner to be eligible. Its best to talk with a USDA loan officer to help ensure you are qualified.
Within most loan types, you can have fixed rate and adjustable rate loans, which are detailed below:
A Fixed Rate loan features equal monthly payments that are made over the term of the mortgage. The interest rate remains the same which keeps the principal and interest payments the same over the term. Payments can vary if taxes or insurance escrow payments change.
An Adjustable Rate loan are mortgages where payments can change periodically over the life or term of the mortgage. An ARM loan has a set interest rate and payment for a period of time during the beginning years and then adjusts to the market rate at a predetermined point. ARM loans may feature lower rates during the initial loan period.